Organizing Siemens For Global Competitiveness

Organizing Siemens For Global Competivenessthe German Company Siemen

Organizing Siemens for Global Competitiveness The German company Siemens is one of the world’s great engineering conglomerates manufacturing everything from hearing aids and medical scanners to giant power generation turbines, wind systems, and locomotives. By the late 2000s, however, Siemens was struggling with subpar performance relative to its global rivals such as General Electric (GE), Honeywell, and United Technologies. In July 2007, Siemens hired Peter Löscher as CEO, replacing Klaus Kleinfeld, and gave him the task of trying to revitalize the organization. Löscher, an Austrian whose career included major leadership positions at GE and Merck, was the first outsider to run Siemens since the company’s establishment in 1847.

In 2007, Löscher inherited a global organization of significant complexity. At the time, Siemens had 475,000 employees and revenues of $72 billion, operated in a wide range of industries, and had activities in more than 190 countries. As a comparison, today, Siemens employs about 362,000 people, with revenues of about $79 billion, and covers a similar number of country markets. At the time, Siemens was organized into 12 operating groups, which were further subdivided into 70 business divisions. Although each division had its own product focus, such as wind power or molecular imaging, Siemens worked hard to deliver integrated solutions to customers.

This required many of the 70 business divisions to cooperate with each other on large projects. Siemens also had a strong tradition of local responsiveness. The countries where the company was the most active had their own executive manager, known as “Mr./Ms. Siemens.” This individual acted as the country manager for all Siemens businesses in a specific geographic area and was also CEO of the respective local company. The operating group and business division structure was often replicated within the local company.

This resulted in a matrix organization, with the head of the power generation business in, for example, Argentina, reporting to the local country CEO and to the global head of the business division. It was the responsibility of Mr./Ms. Siemens and his or her staff to manage relations with local customers, develop bids for projects, and ensure that business divisions cooperated on the delivery of a project. Local companies were given significant discretion over product specifications for local clients. Thus, the local company in Argentina might bid on a subway project in Buenos Aires, tailor that bid to meet the needs of the local client, and if the bid was accepted, make sure that there was sufficient cooperation between the different business divisions in order to successfully complete the project.

Löscher could see the virtue in this organization—it tried to meld together global scale at the business level with local responsiveness at the country level—but it was very complex to effectively and efficiently implement. In his view, there were too many direct reports to the corporate headquarters, resulting in significant overload. There was also a serious accountability problem. If the company failed to deliver a project profitably—let’s say the subway system in Buenos Aires—who, then, was responsible for that: the local managers or the managers of the business divisions? Löscher believed that country managers had too much power in the structure, and the business divisions had too little and were not accountable enough.

In 2008, Löscher changed the organizational structure to deal with these power and accountability issues. He consolidated the operating groups into three main sectors: industry, energy, and health care. The business divisions were placed within their respective sectors. He then organized the 190 country units into 17 regional clusters, and gave them primary responsibility for developing a cost-efficient regional infrastructure, focusing on customers and managing sales organizations. Profit and loss responsibility was assigned to the sectors and business divisions.

Previously each operating group and national subsidiary had maintained its own separate profit and loss accounts. This change was a shock to the Mr./Ms. Siemens around the world, who were told that their goal was to contribute toward the global operating income for a sector and business division. While not doing away with local responsiveness, Löscher had effectively reduced the power of country managers within the Siemens structure, making them directly responsible for boosting the profitability of the global businesses. Löscher went further, instituting a management view process that led to the replacement of half of the company’s top 100 managers.

Löscher is now directly involved in the appointment of the top 300 management positions at Siemens. He also took out two layers of top management that had no operational accountability in the older company structure. His goal in making these organizational changes has been to replace managers who did not buy into a new way of doing things, and to increase the performance accountability of the people who ran the sectors and business divisions.

Paper For Above instruction

The strategic organization of Siemens prior to Peter Löscher's leadership was characterized by a complex, matrix-driven structure designed to balance global scale with local responsiveness. Operating through 12 main groups subdivided into 70 divisions, Siemens aimed to deliver integrated solutions across various industries worldwide, while maintaining strong local market ties through individual country managers known as “Mr./Ms. Siemens.” This setup facilitated customized bids and projects aligned with local needs, fostering customer relationships and operational flexibility. Its benefits included tailored solutions, close customer engagement, and leveraging global expertise. However, this structure also led to significant inefficiencies: excessive direct reports created overload at headquarters, accountability issues arose regarding project profitability responsibility, and the overall complexity hindered effective decision-making and resource allocation. Siemens pursued this strategy to capitalize on local market conditions and to provide personalized services, but the costs in management complexity and coordination inefficiencies prompted the need for reform.

When Löscher assumed leadership, his strategy focused on streamlining Siemens’ organization to enhance global performance and accountability, which he termed his “power and accountability” initiative. He restructured Siemens by consolidating 12 operating groups into three core sectors—industry, energy, and healthcare—and reorganized the 190 country units into 17 regional clusters. This framework shifted profit and loss responsibilities from local subsidiaries to sectors and divisions, aligning incentives and accountability vertically. The objective was to reduce managerial overload at headquarters, clarify responsibility for project and financial outcomes, and foster a performance-driven culture. This new strategy aimed at improving operational efficiency, financial performance, and global integration, whilst still preserving sufficient local responsiveness.

The benefits of this streamlined approach include clearer accountability, improved financial performance, faster decision-making, and a standardized management approach across regions. By assigning profit and loss responsibilities to sectors and divisions, the company hoped to motivate managers to focus on profitability and operational excellence. It also aimed to eliminate unnecessary layers of management, thereby reducing overhead costs and increasing agility. Nevertheless, there are potential drawbacks: reduced local autonomy might impair the company’s ability to respond swiftly to regional customer needs, potentially dampening market adaptability. Furthermore, centralized control could diminish the flexibility that once allowed Siemens to tailor solutions to local specifications. The challenge lies in balancing global efficiency with regional customization, a tension that Löscher’s reforms sought to manage carefully.

The “power and accountability” initiative does imply a shift away from heavily decentralized decision-making rooted in national and regional differences. While Löscher emphasized maintaining strong local relationships and responsiveness, his reorganization seeks to empower sector and divisional managers with direct profit and loss responsibilities, thereby reducing the influence of local country managers. This could lead to a perception that regional differences are secondary to global operational standards. However, Löscher’s approach does not completely eliminate regional adaptations but rather seeks to integrate them within a more streamlined, performance-oriented framework. The success of this balance depends on how effectively Siemens manages local market needs within the constraints of a more centralized and accountable organizational structure, and whether regional managers can still influence customer-specific decisions through their strategic roles.

Overall, Löscher’s organizational overhaul at Siemens highlights a strategic shift from a highly complex, matrix-oriented model toward a more streamlined, performance-driven structure aimed at enhancing global competitiveness. While it offers the advantages of clarity, efficiency, and accountability, it also presents the risks of reduced regional flexibility and potential alienation of local markets. The ongoing challenge for Siemens remains to harmonize global efficiency with local responsiveness, ensuring that strategic reform translates into sustainable competitive advantage in the dynamic global markets.

References

• Bloomberg Businessweek. (2011). How Siemens Got Its Mojo Back. Kammel, B., & Weiss, R.
• Barron’s. (2012). The Culture Changer. Racanelli, V. J.
• Stanford Business School Case. (2010). Siemens: Building a Structure to Drive Performance and Responsibility. Leslie, S. G., & Sorensen, J.
• Porter, J., & Hodder, L. C. (2017). Covering the Care: A Focus on the NH Marketplace. Journal of Healthcare Management, 62(4), 249–263.
• Ozel, H., Ozguven, E. E., Kocatepe, A., & Horner, M. W. (2016). Aging Population–Focused Accessibility Assessment of Multimodal Facilities in Florida. Transportation Research Record, 2584, 45–61.
• Ye, H., & Kim, H. (2016). Locating Healthcare Facilities Using a Network-Based Covering Location Problem. GeoJournal, 81(6), 899–914.
• Porter, J., & Hodder, L. C. (2017). Covering the Care: A Focus on the NH Marketplace. Healthcare Strategy & Marketing, 2(4), 258–273.
• Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2017). Strategic Management: Concepts and Cases. Cengage Learning.
• Katzenbach, J. R., & Smith, D. K. (1993). The Wisdom of Teams. Harvard Business Review Press.
• Hambrick, D. C., & Mason, P. A. (1984). Upper Echelons: The Organization as a Reflection of Its Top Managers. Academy of Management Review, 9(2), 193–206.